New Rules for Capital Gains Tax for Foreign and Australian Investors

July 28, 2017 8.51 am by. Lyndell

 

New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to real property disposals where the contract price is $750,000 and above (previously $2 million) and the FRCGW withholding tax rate will be 12.5% (previously 10%). The existing threshold and rate will apply for any contracts that are entered into from 1 July 2016 and before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Background

Australian resident vendors selling real property will need to obtain a clearance certificate from us prior to settlement, to ensure they don’t incur the 12.5% non-final withholding.

This existing withholding legislation assists the collection of foreign residents’ Australian tax liabilities. It imposes an obligation on purchasers to withhold 12.5%  of the purchase price and pay it to us, where a vendor enters into a contract on or after 1 July 2017 and disposes of certain asset types (or receives a lease premium for the grant of a lease over Australian real property).

The foreign resident vendor must lodge a tax return at the end of the financial year, declaring their Australian assessable income, including any capital gain from the disposal of the asset. A tax file number (TFN) is required to lodge a tax return; they will need to apply for a TFN if they don’t have one. The vendor may claim a credit for any withholding amount paid to us in their tax return.

  • Australian resident vendors can avoid the 12.5%  withholding by providing one of the following to the purchaser prior to settlement:
    • for Australian real property, a clearance certificate obtained from the ATO
    • for other asset types, a vendor declaration they are not a foreign resident.
  • Foreign resident vendors may apply for a variation of the withholding rate or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.
  • Purchasers must pay the amount withheld at settlement to the Commissioner of Taxation.

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